Chapter 7 Filers Cite Medical Debts as a Main Reason for Filing

November 21, 2012

Today, many Americans are suffering from extreme medical debt. Medical debt is money owed to a physician, medical facility or other healthcare provider. These days, a simple health procedure could create a deep hole in your pocket, leaving you penniless. This is true even for those with health insurance. Modern insurance plans have so many co-payments and deductibles, which may make covered medical treatment expensive.

Therefore, it is no surprise that Chapter 7 bankruptcy filers often cite medical debts as the main reason for filing. Chapter 7 bankruptcy releases your duty to pay medical expenses by clearing out most unsecured debts. Not all debts are released through the Chapter 7 process; however, it usually eliminates debt that is not secured by collateral, such as credit card or medical debt.

Once bankruptcy clears medical expenses from your outstanding debt, hospitals and collection agencies cannot collect on the money that you once owed - this is illegal. For this reason, many individuals that are drowning in financial problems opt for this debt-reducing plan.

It is important to note that if you plan to discharge your medical expense through Chapter 7 bankruptcy, you must wait eight years before you can file again. Therefore, if your medical treatment is ongoing, you might want to wait until it is complete before filing. This is because it is best to avoid new debt after bankruptcy. An attorney can help you evaluate your particular situation.

Eligibility

Before you consider Chapter 7, you must qualify. The "means test" determines whether you are eligible. The initial step of the test compares your income to the median income in your state. If your income is below the median income, you probably meet the criteria for Chapter 7 eligibility. However, if your income is higher, you must proceed to the second part of the test to determine whether you qualify.

In the second portion of the analysis, certain allowable expenses (based on IRS guidelines) are deducted from your income to calculate your "disposable income." If your disposable income equals less than $6,000 over a five-year period, you may be eligible to file under Chapter 7. On the other hand, if your disposable income is above $10,000 for this period, you will probably have to look to other debt-reducing options.

If your disposable income falls somewhere between these amounts over a five-year period, your disposable income will be balanced against the percentage of your unsecured debt (for example, medical bills).

As you can see, the eligibility process for Chapter 7 involves compound calculations. This is a just a glimpse into the overall process. Nevertheless, an experienced bankruptcy lawyer can help you work through the computations. Moreover, if you do not qualify for Chapter 7 bankruptcy, several other options can help reduce your medical debt.

Article provided by Heller & Richmond, Ltd.
Visit us at www.affordablebankruptcychicago.com/